3^5 


UNWEBSITY  OF  «JJNO«-URBAMA 


3  0112  062003634 


I. 

ir 


( 


*^9  NOV  ^913 

The  Railway  Situation 
and  Its  Causes 


An  Address  Delivered 


before 


THE  TRANSPORTATION  CLUB 
OF  INDIANAPOLIS 


Monday.  September  29th,  1913 

by 

MR.  BLEWETT  LEE 

OF  CHICAGO.  ILL. 


3 


Mr.  Chairman  and  Members  of  the  Transportation  Cluh  of 
Indianapolis: 
When  a  man  gets  to  be  old  there  is  something  very  un- 
pleasant and  unfortunate  which  happens  to  him.  It  is  hard- 
ening of  the  arteries.  The  blood  vessels  lose  their  elasticity 
and  grip.  They  refuse  to  stretch  any  more.  The  blood  pres- 
sure becomes  dangerous,  and  by  and  by  the  man  dies. 

The  railroads  of  this  country  are  its  arteries,  and  traffic  is 

.its  life  blood.     The  business  of  the  country  is  growing  al- 

^,moet  by  leaps  and  bounds,  but  the  railroads  do  not  grow  to 

keep  pace  with  it.     The  railroads  are  scarcely  growing  at 

all.    They  need  more  lines,  more  branches,  more  tracks,  more 

^terminals,  more  cars,  more  everything.     Unless  this  situa- 

^  tion  changes,  the  business  of  the  country  will  be  bursting  its 

""  arteries. 

p_^      What  is  the  matter  ?    The  railroad  men  tell  you  they  can't 

/yj  borrow  the  money  necessary  to  make  these  improvements. 

The  companies  are,   many  of  them,   living  from  hand  to 

mouth  on  short-term  notes.     At  this  very  time  three  of  the 

great  Western  systems  are  in  the  hands  of  Receivers,  the 

^  Wabash,  the  Frisco  and  the  Pere  Marquette.    Why  can't  the 

railroads  borrow  money  ?    Well,  thereby  hangs  a  tale. 
f      In  the  first  place,  the  prices  of  all  supplies  have  gone  up. 
,  Everywhere  the  railroads  have  to  pay  more  money  for  what 
U  they  need.     The  decrease  in  the  cost  of  production  of  gold 

,^"~or  some  other  reason  has  reduced  the  value  of  a  dollar  until 

.  .       .  / 

y  it  will  not  buy  anything  like  what  it  did  a  few  years  ago. 

^  The  average  receipts  per  ton-mile  have  changed  very  little 
^   since  1900,  but  the  purchasing  power  of  the  money  has  de- 
clined on  the  average  at  least  25%.      The  yardstick  is  being 
shortened  all  the  time. 


In  the  second  place,  the  wages  of  labor  have  risen  and  are 
rising  like  a  steady  tide.  Not  that  I  blame  the  laborers  for 
trying  to  get  more  wages — ^for  wages  have  not  risen  as  fast 
as  the  cost  of  living — ^but  I  do  think  the  laborers  are  demand- 
ing more  than  the  railroads  can  afford  to  pay.  The  national 
labor  organizations  are  strciiger  than  the  railroads.  Every 
threatened  strike  means  an  arbitration,  and  every  arbitration 
means  a  compromise,  and  every  comprotnise  means  a  further 
depletion  of  the  meager  revenues  of  the  railroads.  It  is  not 
generally  known  that  one  of  the  chief  obstacles  to  electri- 
fication is  the  insistent  demand  of  the  engineers'  and  train- 
men's organizations  that  the  men,  who  do  the  work  of  a 
motornian  on  an  interurban  line,  shall  receive  the  same  pay 
as  a  locomotive  engineer.  It  is  obvious  that  this  demand, 
which  the  railroad  companies  are  not  strong  enough  to  re- 
sist, practically  deprives  the  public  of  the  economy  of  elec- 
trification and  indeed  takes  from  electrification  the  most 
important  economy  which  it  has  to  offer. 

By  comparing  the  statistics  of  the  Interstate  Commerce 
Commission  for  1902  and  1912  it  will  be  found  that  while 
the  total  operating  revenues  have  increased  64.6%  the  total 
operating  expenses  have  increased  75.5%,  of  which  the  total 
compensation  of  employes  increased  84.9%,  as  compared 
with  the  total  other  expenses  which  have  increased  61.1%. 
The  ratio  of  compensation  of  employes  to  the  total  earnings 
which  was  39.9%  in  1902,  rose  to  43.9%  in  1912,  and  the 
ratio  of  compensation  of  employes  to  total  expenses  rose 
from  62.4%  in  1902  to  a  total  of  63.4%  in  1912.  As 
against  this,  the  average  rate  per  passenger  mile  in  the 
United  States  in  1902  was  1.986  cents,  and  in  1912  it  was 
1.985  cents;  and  in  1902  the  average  rate  per  ton  mile  was 


.753  cent,  and  in  1912,  .743  cent.  In  other  words,  both 
passenger  and  freight  rates  were  lower  at  the  end  of  the  dec- 
ade than  they  were  at  its  beginning.  Labor  is  getting  the 
best  of  it,  both  absolutely  and  relatively.  The  railroads  pay 
out  about  a  billion  and  a  quarter  dollars  a  year  in  wages. 

In  the  third  place,  the  heavy  hand  of  legislation.  State 
and  Federal,  is  laid  upon  the  railroads.  We  are  being  stoned 
to  death  with  statutes.  The  Government  has  taken  all  the 
privileges  of  ONvnership  with  none  of  its  responsibilities.  In 
Europe  cars  are  still  coupled  on  the  link  and  pin  plan. 
Why?  Because  after  careful  inquiry  the  Governments 
found  the  railroads  could  not  with  their  present  earnings 
afford  the  expense  of  changing  all  their  equipment.  Imag- 
ine such  an  answer  as  that  being  taken  in  this  country! 
Why,  a  railroad  man  who  had  the  nerve  to  stand  on  that  po- 
sition would  be  thrown  to  the  newspapers.  They  would 
make  "Mellen's  food"  of  him.  Eailroads  are  the  great  pop- 
ular plaything.  There  is  more  and  more  legislation  all  the 
time  which  wears  the  amiable  mask  of  care  for  the  public 
safety,  but  is  really  intended  to  force  the  employment  of 
unnecessary  men,  to  strengthen  the  monopoly  of  employment 
in  the  hands  of  the  great  Unions,  to  compel  the  purchase  of 
favored  illuminating  or  safety  devices,  or  to  force  the  erec- 
tion of  decorative  depots,  veritable  cathedrals  of  industry, 
in  obscure  communities.  Population  between  1890  and 
1910  increased  47%,  but  the  number  of  railroad  employes 
109%. 

In  the  fourth  place,  there  is  the  steady  progress  of  rate 
reduction  sometimes  by  the  direct  action  of  the  Legislature, 
as  where  by  law  passengers  are  compelled  to  be  carried  with- 
out profit,  the  freight-shipping  public  being  saddled  with 


6 


part  of  the  expense  of  the  traveling  public,  or  by  the  pull 
down  of  this  rate  or  that  by  Commission  action,  each  re- 
duction, as  you  gentlemen  very  well  understand,  automat- 
ically pulling  down  a  lot  of  other  rates  not  reduced  by  name. 
A  railroad  now  has  to  haul  an  average  ton  of  freight  two 
and  a  half  miles  to  earn  a  postage  stamp.  The  Interstate 
Commerce  Commission,  I  am  glad  to  say,  is  beginning  to 
go  slower  about  rate  reduction  in  view  of  the  stop  which  has 
come  to  new  railroad  construction  in  the  country.  The 
State  Commissions,  however,  are  not  disturbed  by  little 
symptoms  of  that  kind,  but  following  the  glorious  example 
of  Texas,  continue  to  punish  Wall  Street,  and  incidentally 
themselves,  as  opportunity  offers.  There  are  exceptions  to 
this,  notably  in  case  of  the  Wisconsin  Commission,  which 
has  administered  its  great  office  as  a  public  trust.  But  many 
of  the  Commissioners  in  other  States  who  are  for  the  most 
part  ridiculously  underpaid,  look  upon  their  positions  sim- 
ply as  political  stepping-stones  to  the  Governorship,  or  what 
not,  and  insist  all  the  time  on  playing  St.  George  to  the 
railroad's  dragon. 

Fifthly,  there  is  the  overtaxation  of  railroads.  In  many 
communities  railroad  taxes  have  more  than  doubled  in  the 
last  ten  years.  They  are  now  paying  more  than  $120,- 
000,000  a  year  taxes.  Railroads  really  ought  not  to  be 
taxed  at  all;  if  necessary  rates  should  be  reduced  instead, 
for  in  the  nature  of  things  all  the  taxes  which  they  pay 
they  necessarily  collect  over  again  from  the  people.  A  tax  on 
railroads  is  a  tax  on  shippers.  It  is  indirect  taxation  of 
the  people  based  upon  their  necessities  instead  of  direct  tax- 
ation, based  upon  their  capacity  to  pay.  But  you  couldn't 
make  the  average  citizen  see  that  obvious  fact — he  has  an 


idea  perhaps  that  railroads  literally  make  money,  or  possi- 
bly inherit  it  from  rich  uncles.  The  stupid  process  of  piling 
up  the  taxes  on  railroads  leaves  them  with  less  and  less 
money  for  needed  improvements,  and  instead  of  permitting 
a  reduction  of  rates,  makes  an  increase  inevitable.  One 
dollar  in  every  six  of  net  operating  income  is  now  taken  for 
taxes.  The  wages  and  taxes  paid  by  railroads  amount  to 
nearly  four  times  as  much  as  the  dividends  paid  on  their 
stock. 

Sixthly,  the  growth  of  personal  injury  litigation  has  be- 
come a  serious  factor  in  the  railroad  financial  situation.  In 
spite  of  the  fact  that  such  injuries  are  not  increasing  but  are 
diminishing  in  numbers  notwithstanding  the  increase  of 
traffic,  the  amounts  paid  in  damage  suits  and  settlements 
have  enormously  increased.  Between  1908  and  1912  the 
number  of  passengers  carried  increased  about  15%.  There 
were  nevertheless  only  114  passenger  fatalities  in  1912  as 
compared  with  148  in  1908  and  only  621  employe  fatalities 
as  against  659  in  1908.  IS^otwithstanding  this  there  was  a 
heavy  increase  of  the  amounts  paid  out  for  personal  injuries. 
Indeed,  in  the  thirteen  years  between  1899  and  1912  the 
amount  paid  by  the  railways  of  the  United  States  for  in- 
juries to  persons  increased  288%.  The  railroads  of  the 
country  are  bleeding  at  every  pore  from  this  character  of 
litigation.  Certain  localities  have  distinguished  themselves 
by  extravagant  verdicts  and  suits  are  being  brought  in  these 
places  from  all  over  the  country.  Bleeding  railroad  com- 
panies in  this  way  has  become  a  highly  organized  industry 
which  laughs  to  scorn  the  feeble  fulminations  of  the  common 
law  against  champerty  and  maintenance. 

Still  another  consideration  is  the  rise  of  the  rate  of  in- 


8 


terest  in  corporate  finance.  Instead  of  borrowing  at  four 
per  cent,  even  the  most  fortunate  corporations  now,  and 
probably  for  a  long  time  in  future,  will  have  to  pay  at  least 
five  per  cent  for  long  time  money  upon  the  best  security, 
with  rates  correspondingly  higher  on  short  loans. 

What  is  going  to  be  +Le  outcome  of  all  this  ?  The  ulti- 
mate result,  I  fear,  is  government  ownership,  with  worse 
administration  of  the  railroads  than  ever  before,  and  prac- 
tically no  remedy  or  redress  for  its  shortcomings.  We  will 
then  be  about  as  helpless  about  our  freight  as  we  now  are 
about  our  mail.  Meanwhile  we  can  only  pray: 
Be  near  us  when  our  goods 

Are  slipping  o'er  the  brink. 
We  are  nearer  government  ownership  today 
Perhaps  than  now  we  think. 

What  is  to  be  done  about  it?  Why  there  is  only  one 
thing  that  offers  any  present  hope  of  relief  and  that  is  a 
moderate  but  general  increase  of  freight  rates.  Just  as  long 
as  the  relative  adjustment  of  rates  is  not  changed,  nobody 
would  be  seriously  hurt,  and  the  railroads  would  be  able  to 
show  the  bankers  such  a  balance  sheet  as  would  justify  the 
necessary  loans.  That  is  the  remedy  that  England  is  apply- 
ing today,  and  that  is  wise  business  sense  in  America  too, 
and  wise  statesmanship  also,  for  it  would  be  ultimately  for 
the  benefit  of  the  whole  public. 

Xow  I  confess  that  I  am  not  very  hopeful  that  the  neces- 
sary thing  will  be  done,  for  it  requires  an  amount  of  moral 
courage  on  the  part  of  public  men  which  is  painfully  absent 
in  public  life.  To  do  the  presently  unpopular  thing  for  the 
sake  of  the  distant  and  certain  public  good  takes  a  certain 
heroic  quality  which  is  very  rare.     !N^o  man  wants  to  be  a 


9 


martyr.  What  is  more  likelj  to  happen  is  that  the  railroads 
will  continue  to  sit  tight  and  hold  on  to  every  dollar  they 
can,  until  the  pressure  of  the  inevitable  increase  of  business 
becomes  so  great  that  even  at  present  rates  they  will  be  able 
to  make  a  living.  Slowly  from  the  grinding  necessities  of  a 
reluctant  people  at  last  by  bitter  experience  will  be  extorted 
a  sufficient  reward  to  capital  to  induce  further  investments  in 
railroad  property. 

The  mills  of  God  grind  slowly, 

But  they  grind  exceeding  small, 
Tho'  with  patience  He  stands  waiting 
With  exactness  He  pays  all. 
The  short-sighted  greed  which  compels  carriers  to  work 
for  less  than  a  living  wage,  will  be  succeeded  by  the  want, 
the  pressing  want,  of  railroad  facilities  with  no  means  to 
get  them,  for  nobody  on  earth  can  be  compelled  to  send  good 
money  after  bad.     In  the  present  state  of  affairs  in  this 
coimtry  investments  in  railroads  are  bad  money,  and  until 
they  are  made  good  money  by  better  rates  and  fairer  legis- 
lation, the  savings  will  not  be  coaxed  out  of  Eastern  and 
European  strong  boxes.    The  ancient  call  of  "Ducky,  ducky, 
\  come  up  and  be  plucked"  has  somehow  lost  its  charm,  and 
i  those  bond-buying  savings  banks  have  developed  a  wholesome 
I  fear  about  not  getting  their  interest  on  new  railroad  invest- 
I  ments.      The  necessity  for  improvements   is   upon   us,   the 
money  is  really  there,  but  the  confidence  is  lacking,  and  in 
all  frankness  it  ought  to  be  lacking  until  a  change  comes  over 
the  treatment  which  the  State  gives  to  its  railways. 


Bliii 


3  0112  062003634 


